Engaging Syria seems to be a low priority for the current administration. At the same time, President Bashar al-Asad looks content to cultivate his relationships with regional powers like Turkey, Iran and Saudi Arabia. With little urgency on either side, how likely is it that we will see any substantive change in the U.S.-Syrian relationship over the next few years?

Without a resolution to the Golan issue and peace between Israel and Syria, there will be little real change in U.S.-Syrian relations. Perhaps we will see some tinkering about the edges of the relationship, but the fundamentals will remain bad. No U.S. administration will befriend Israel's principal Arab enemy. There are tremendous pressures in Congress, various branches of government, and at every level of U.S. society to punish Syria for its enmity toward Israel, which captured a substantial swath of Syrian territory in 1967 and annexed it in 1981. Because Syria supports what it calls legitimate "resistance" to that occupation and what Washington calls "terrorism," Syria will be in Washington's doghouse. Economic sanctions will remain in place and pressure to isolate Syria diplomatically will remain strong.

Does the United States pay a price for not engaging Syria? If so, how?

The United States has paid a high price for the failure to mend relations with Syria and continues to pay a price for not having an ambassador there. One, it has paid a particularly high price in Iraq for its refusal to cooperate on military matters and border security. Two, Washington pays a price for having no intelligence sharing with the Syrians on al-Qaeda and broader security matters. Three, Syria is emerging as a central hub of regional diplomacy; America should have someone there to play the game and represent U.S. interests.

Beginning in 2004, U.S. military leaders in Iraq sought to improve relations with Damascus in order to better police the long and porous Iraq-Syria border. The Iraqi resistance was growing more violent and capable by the day. The United States needed close intelligence sharing, joint border controls, and Syrian cooperation in order to stanch the flow of foreign fighters infiltrating across the border. Cooperation would have saved many Iraqi and American lives.

President Asad reached out to Washington on the Iraq border issue, first through Colin Powell and then Condoleezza Rice. He offered military cooperation but insisted that the United States first stop demonizing Syria and seeking to isolate it. Syria would work with the United States to interdict foreign fighters crossing the border but only if relations between the two countries were correct and polite. President Bush's diplomats turned up their noses at engaging with Damascus. They were impervious to pressure from the U.S. military, which was paying the price for zero border cooperation and a growing body count. President Asad was told that he "knew what he had to do" and that "Washington would not bargain with terrorists." "What is more," Syrians were told, "al-Qaeda and foreign fighters will hurt Syrian more than U.S. occupation forces in the long run; the blowback on Syria will be deadly." Thus, the reasoning in Washington was that the United States need not cooperate with Syria and would pay no price for it. The Syrians would take care of security on their own. Asad replied, "Syria is not a charitable institution." Nothing came of attempts to place relations on a more normal footing. General Petraeus asked his political leaders for permission to go to Damascus himself on several occasions, but his remonstrations fell on deaf ears. It should be noted that al-Qaeda has made almost no successful attacks in Syria. American soldiers and Iraqis paid a very high price for Washington's ideological intransigence on the Syrian issue. We will never know how much sooner the war in Iraq might have been brought under control had Syria been engaged.

Of course, President Bush's refusal to work with Asad must be seen in the context of his grander plans for change in the Greater Middle East. He was intent on pulling Lebanon out of Syria's sphere of influence, where it had remained since the 1980s, when Hezbollah emerged as a lethal fighting force and helped Syria drive both U.S. marines and the Israeli army from Lebanon's soil. This was a major victory for Syria. An important wing of the Republican Party had been looking forward to the day that it could avenge its losses in the 1980s, drive Syria from Lebanon, and destroy Hezbollah. Some even dreamed of replacing the government in Damascus. U.S. military leaders in Iraq had little traction in the Bush administration against these neoconservatives, who saw Iraq as only one theater of a larger war. For them, cooperation with Syria would have meant deferring, or even forgoing, their ambitions to control Lebanon and cut Syria down to size.

President Obama has found improving relations with Damascus more difficult than he expected. Although he nominated Robert Ford, a well-respected career diplomat, to be ambassador to Syria in February 2010, Senate Republicans have blocked his confirmation. They disagree with the policy of reengaging the Syrian government. America has been without an ambassador in Damascus since February 2005, when it blamed Syria for the assassination of Lebanon's prime minister, Rafiq al-Hariri. It remains to be seen whether the threatened indictment of Hezbollah members — but no Syrians — by the special tribunal created to try the Hariri case will diminish opposition to engagement with Syria.

Obama's failure to push through the confirmation of his ambassador has brought efforts to resume military and intelligence cooperation to a standstill. During the first months of his administration, several meetings took place in Damascus between high-ranking U.S. military officers and their Syrian counterparts. These joint military conferences were an effort to draw the contours for possible future military cooperation and fixing the border. Such cooperation would lay the groundwork for the resumption of intelligence sharing that had been cut off in April 2005. Secretary of State Colin Powell had explained that, after 9/11, Syria was providing "actionable information [on al-Qaeda and terrorists] that helped save American lives." But for Syria, this sort of cooperation is off the table so long as there is no progress on the formal relationship and interactions between the two countries are characterized by blocked ambassadors, sanctions and public name-calling. Having an ambassador in Damascus and maintaining civil relations with Syria serve the interests of the United States more than those of Syria.

President Bashar al-Asad has publicly stated that he is prepared to sign a peace agreement with Israel, and the two countries have come close on at least two occasions in the last 10 years. What is preventing a deal from going forward, and how might the obstacles be overcome?

First, let me respond to why a deal has not been signed, even though all sides say that they came very close in 2000. This may be an over-simplification, but I believe it boils down to a question of balance of power. Syria is too weak. Israel does not believe it will achieve sufficient security gains by giving back the Golan, and there would be significant internal opposition. Israelis have occupied the Golan for almost 45 years now. More than a generation of Israelis have been born and brought up there, making it hard to think of leaving. Just recently, a new advertising campaign to attract additional settlers to the region was begun by the Israeli government. Substantial financial incentives are being offered to those who move there.

Syria is not a major threat to Israel, even with a beefed-up Hezbollah and a new friend in Turkey. It is a nuisance, but not more. Only very heavy pressure will convince Israelis to make the difficult decision to repatriate its 20,000 settlers and allow the 100,000 original inhabitants of the Golan who were expelled in 1967 to return to their land and homes. Of course, the number of Golani refugees who militate for the return of their land has grown due to natural increase to more than 300,000. This pressure could come from a change in the regional balance of power. It could come from U.S. and international diplomatic pressure. But neither is on the immediate horizon, which makes the prospect of Syrian-Israeli peace seem a distant hope.

Who was at fault for the failure of the Syria-Israel talks in 2000?

At first, President Bill Clinton and Prime Minister Ehud Barak blamed Syria for walking out of the negotiations, but more recently, a very different picture of what actually took place has emerged in the memoirs and other published accounts of the peace process. They suggest that Israel scuttled a deal that was very close to being finalized. Prime Minister Barak wouldn't take the last step for reasons that he has yet to explain. Perhaps he didn't believe it was politically feasible; perhaps he thought it a bad deal. He also had the reassurance that Washington would provide him political cover for walking away from it, which was indeed the case. Dennis Ross, the chief U.S. negotiator, and President Clinton accused Asad of abandoning ship.

Since then, however, a different story has emerged. Clinton recanted in his memoirs, writing that Barak got "cold feet." Maj. Gen. (res.) Uri Segev, a leading Israeli negotiator, said only a few months ago,

We were very close to achieving a peace agreement with Syria in 2000. Closer than ever. It would have happened, had we done what we promised to ourselves, the Americans and the Syrians…. The Syrians and Bill Clinton came out of there with the feeling that the Israelis did not meet their commitments." He called it "a missed opportunity of deep historic significance."1

Even Dennis Ross later criticized Barak because "he inevitably wavered" when it came time to make major territorial withdrawals in order to achieve historic breakthroughs on the Syrian or Palestinian fronts.2 At the last minute, Barak did not agree to a withdrawal to a genuine June 4, 1967, line — even though three previous Israeli prime ministers had assured Asad that this would be the line of demarcation if Israel's concerns were met on security, water, a staged withdrawal and the nature of peace. Frederic Hof, an expert on the Golan border area and George Mitchell's right-hand man in today's peace efforts, has demonstrated that, in 1967, Syria controlled land up to the shoreline of the Sea of Galilee in the northeast corner.

The failure to clinch a peace agreement has been extremely costly. The Syrians were convinced that they had been badly used. Asad did not believe that he was merely being low-balled by the Americans and Israelis as a negotiating tactic; he was convinced the Israelis had been stringing Syria along in bad faith for the better part of a decade. Why? Because they knew that by dangling the Golan before Syria, they could buy Syria's good behavior and win a compliant neighbor. "They don't want peace," Asad said on leaving Geneva. It will be very difficult to rebuild trust.

A second damaging effect of the failure in 2000 is that the two-state solution in Palestine may no longer be feasible. The United States will remain committed to supporting Israel, but the costs of the special relationship will grow more painful for Washington.

Third, Israel set a new and harmful precedent for dealing with its Arab neighbors: the unilateral withdrawal. Rather than negotiating a comprehensive peace with Syria and Hezbollah, Barak decided to withdraw from southern Lebanon unilaterally. This seemed a less expensive solution. It jettisoned a failing and costly occupation, while permitting Israel to remain in the Golan Heights, its major prize, where there had not been any violence for almost 30 years. By withdrawing from Lebanon, Barak also hoped to divide the Lebanese from Syria.

The unilateral withdrawal was copied later by Prime Minister Ariel Sharon in Gaza. When Sharon came to power, he was pressured by the Americans to resume the Syria track and solve the Golan issue. Instead he opted for a cheaper solution that would placate the Americans and allow Israel to keep the Golan. Both withdrawals left major problems in their wake; the Arabs were not satisfied, as their core issues had not been addressed. Today the withdrawals are considered failures. They are used to argue against further concessions or return of land. The unsettled issues in Southern Lebanon and Gaza have each rekindled wars.

President Asad has suggested that he could bring Hezbollah to the negotiating table if Israel got serious about signing a peace deal with Syria. Some analysts argue, however, that much has changed since 2000 and that Syria no longer has the same influence over Hezbollah.

Syria has great influence with Hezbollah. It is fashionable to argue that Syria has lost its clout in the region since it withdrew its army from Lebanon in 2005. Many of the same people who suggest that we don't need to engage Syria also argue that the status quo works and that the United States can ignore Israel's continued occupation of the Golan. But this is folly. The border disputes between Israel and its neighbors have been the source of most of the region's wars; they will be the source of more if left unresolved. Moreover, the Arab-Israeli conflict remains a leading engine of resentment against America.

Although Syria is weak in comparison to Israel, it is strong in comparison to Lebanon. To assume that Hezbollah can or will thumb its nose at Syria now that Syrian troops are no longer present in Lebanon is to misinterpret the nature of the alliance among Iran, Syria and Hezbollah. The relationship is not based on coercion, but on common goals. Syria and Hezbollah have preserved their alliance, despite major challenges, over the last three decades because it is vital to their interests.

Both Iran and Hezbollah have stated that they understand that Syria's primary national interest is to get the Golan back. They do not oppose this. That is why in 2000, when an ailing Hafiz al-Asad flew to Geneva to sign a peace agreement, neither Iran nor Hezbollah sought to torpedo it.

Syria has said that the strategic environment in the region will change with peace. It will ask Hezbollah to move in tandem with Syria and to reposition itself in Lebanon and the region should Israel agree to a comprehensive peace. Syria will not move against Hezbollah or abandon it. Syria needs good relations with Lebanon's Shiite community, which provides it with influence inside Lebanon. It will need these good relations to continue, but it will not need Hezbollah to act as an anti-Israel militia. The two will need each other even when peace is signed with Israel. They will not break over that issue.

Hezbollah is dependent on Syria for many things, not least of which is arms. Its missiles and military resupplies come across the border from Syria. There is no other dependable route for them to reach southern Lebanon. Israel and the United States patrol the air and sea around Lebanon. They have good intelligence and the means to interdict large military imports from every direction but Syria. So long as the Golan issue is not resolved, Syria will seek to strengthen Hezbollah as an independent fighting force that can pressure Israel. This means keeping the Lebanese government weak. Lebanon will remain hostage to the festering Arab-Israeli conflict. Syria remains very powerful in Lebanon.

Do you think war is on the horizon? If so, will Syria get involved militarily?

I do think that war is on the horizon — perhaps not the immediate horizon, but it will come sooner or later so long as the casus belli of Israeli occupation of Syrian land is not resolved. Syria has not surrendered on the Golan issue. Bashar al-Asad has made it very clear that if the issue cannot be solved diplomatically, there will be more resistance. He is raising the stakes.

During the 2006 war, the firepower of Israel and Hezbollah was extremely lopsided. Hezbollah was able to launch only 28 tons of ordinance at Israel, despite using 4,000 rockets. What is more, these missiles had little guidance; most landed far from their targets. Israel bombed Lebanon with 7,000 tons of explosives, much of it guided by sophisticated systems. This is a 250 to 1 ratio. Hezbollah took a pounding, which is why Hasan Nasrallah was quick to apologize to Lebanon and explain that he had neither wanted nor intended war. All the same, both Iran and Syria were gratified by Hezbollah's professionalism and fighting prowess. Its low-tech missiles and anti-tank weapons worked better than anyone expected. Hezbollah and the Syrians argue that the war shifted the balance of power in their favor just as it significantly undermined Israel's deterrence.

Syria, Iran and Hezbollah have a strategy for the future: lots of improved, mobile and small missiles spread out over a greater expanse, including Syria. Asad has made it clear that, if Israel doesn't choose peace by returning the Golan, Syria will remain committed to changing the balance of power. He will keep stocking up on and improving Syria's and Hezbollah's missiles and air-defense systems. He is determined to reverse the perception that Syria is weak. A number of Syrian officials have explained to me that they do not believe Israel will engage in serious negotiations before there has been another war.

Do you believe that Syria will participate directly in the next war?

Syria will try to stay out of any war, as it has in the past, knowing that it will pay a very high price for direct combat with Israel. In the 1973 war, most of Syria's industrial sites were bombed. But President Asad understands that he must be willing to go all the way in order reassure his allies and push the Israelis to reconsider their assessment that Syria is weak. If Hezbollah's powers and war plan are to be enhanced, it must have the strategic depth that only Syria can provide. This means greater Syrian involvement and, of course, risk. In January 2010, Syria stated that it would come to Hezbollah's defense if Israel attacked its ally and that Israel would know war within its cities.

Israel, for its part, warned President Asad that it will respond to missile attacks from Hezbollah "by launching immediate retaliation against Syria itself." As one Israeli minister said to the London Times, "We'll return Syria to the Stone Age by crippling its power stations, ports, fuel storage and every bit of strategic infrastructure if Hezbollah dares to launch ballistic missiles against us."3 Iran immediately defended its ally, explaining that it would "stand alongside Syria against any (Israeli) threat." Israeli Foreign Minister Avigdor Lieberman upped the ante further by threatening President Asad: "Not only will you lose the war, you and your family will no longer be in power."

These threats do nothing to reassure one that war can be avoided. At the same time, the border between Lebanon and Israel has been quiet for four years, longer than at any time in recent history. In no small part, this is because of the heightened mutual threat. Because Hezbollah hurt Israel in 2006, it has gained an important deterrent effect. Likewise, Hezbollah is not eager to undergo another bombing. How long Israel can be convinced not to go after Hezbollah, one can only guess. In the past, Israel has been quick to carry out preemptive strikes against enemies it believes are trying to shift the balance of power. Hezbollah has been acquiring new and better missiles.

Looking back over the past 10 years, what would you say were Bashar's three greatest achievements?

First, I think everyone would agree that Asad's greatest achievement is that he is alive and in charge of Syria. He survived President Bush. Not only did he survive; he is no longer beholden to an old guard and is in complete command, out from under his father's shadow.

It is necessary to remind ourselves how few commentators were betting on Bashar's survival during his first five years. Some of the epithets used to describe Asad and Syria were "low-hanging fruit," "punching above his weight," "blind eye doctor," "stumbling from one mistake to another," and "Fredo Corleone." These clichés were sprinkled liberally throughout the analyses of Washington's leading think tanks. How wrong they were!

Second, Syria's foreign-policy engine is firing on all cylinders. Asad has patched up relations with every Arab government and built Damascus into a central hub of regional diplomacy. As this article goes to press, Asad has demonstrated the key role Syria plays in Lebanon. Both Lebanon's Prime Minister Saad Hariri and Saudi Arabia's King Abdullah have visited Syria in an effort to ensure a common policy in Lebanon. Saudi Arabia has been coordinating with Syria to ensure that Israel and Lebanon stay out of war and that Shiite-Sunni relations in Lebanon remain calm in the face of indictments handed down by the Special Tribunal for Lebanon. In Iraqi politics, Syria is also playing an important role. Both Iyad Allawi and Muqtadda al-Sadr recently traveled to Damascus in order to negotiate over the future Iraqi government.

Asad has also recently undertaken successful trips through Eastern Europe and South America, where he signed a number of important economic agreements. That he has been able to restore Syria's diplomatic reach in the region is no small accomplishment, considering that only a few years ago President Bush was able to pressure world leaders not to host him in their countries and had turned both the Saudis and Egyptians against him. President Asad's wise shepherding of Syria's foreign-policy assets has returned Syria to the center of regional affairs. Americans have frequently lamented that Syria "punches well above its weight" in regional affairs. This achievement, much to Washington's chagrin, is due only partly to Asad's skill. Much of Syria's weight in the Levant must be attributed to the weakness of Syria's neighbors and benighted policy of the United States. Three of Syria's five neighbors — Lebanon, Palestine and Iraq — have been shattered by years of internecine strife, foreign occupation and bad leadership.

Key to Asad's foreign-policy success is his rapprochement with Turkey. Turkey's turn toward the East, combined with Syria's success in developing a special relationship with Ankara, has catapulted Syria toward the first rank of regional powers. The wooing of Turkey is very much Basher Al-Asad's achievement. Not only did Turkey provide crucial help in defeating President Bush's attempt to isolate Syria in 2005; it has multiplied Syria's regional importance. Because Turkey is the seventeenth-largest economy in the world and the one Middle East country that the West has held in high esteem for its secularism, Westernization and democratic evolution for almost a century, its friendship has a multiplier effect. When Turkey supports a Syrian decision, other nations pay attention. Syria's ability to coordinate with Turkey on its policies on Iraq, Lebanon, Iran and Israel is tremendously advantageous to Damascus.

What is more, Turkey has emerged as a real leader in the region. With Egypt and Saudi Arabia's leaders infirm and in their mid-eighties, Turkey has stepped forward as the power everyone must look to. This is good for Syria. Damascus is working assiduously to build what some are calling a "northern alliance" that will shift foreign-policy weight from the south — primarily Saudi Arabia, Egypt and Israel — toward the north — Turkey, Syria and Iran. Of course, for this alliance to have real effectiveness, Iraq will have to stabilize around a unified leadership that takes its place in the alliance.

Third is Lebanon, Asad's first proving ground. After the untimely death of Bashar's older brother in 1994, Hafiz al-Asad called Bashar back to Syria to be groomed for power. Hafiz gave his son Lebanon to run, on the assumption that anyone who could survive the challenges of Lebanese politics would be fit to rule Syria. On assuming power in July 2000, Bashar's first foreign-policy challenge came in Lebanon with Israel's unilateral withdrawal one month before his father died on June 10. Israel hoped the tactical retreat would divide Lebanon from Syria. This gambit failed, in large measure because Asad was careful to keep Hezbollah leader Hassan Nasrallah close and friendly. Many Western and Israeli commentators derided Asad for being too solicitous of Nashrallah, meeting him in person and frequently when his father would have kept his distance. They argued that Bashar showed political weakness and a lack of foreign-policy acumen in his warm embrace of Nasrallah. This was pure nonsense.

Hezbollah has turned out to be Bashar al-Asad's ace of spades. It defeated Israel and paved the way for Syria's return as the dominant foreign power in Lebanon. To top it off, Nasrallah turns out to be the most respected and popular Middle Eastern leader in opinion polls. Standing by him does Asad nothing but good in the minds of Syrians and Arabs, if not Westerners. In the opinion of Middle Easterners, Nasrallah has sacrificed personally and done more to defend Arab rights than other regional leaders. In 2005, when the United States, the United Nations, and the newly formed March 14 coalition in Lebanon forced Syria's precipitous and humiliating withdrawal from Lebanon, Nasrallah rallied a million Lebanese to demonstrate in Syria's favor. He personally thanked Asad for the sacrifices Syria had made to bring the bloody Lebanese civil war to an end and in assisting Hezbollah in its arduous campaign to liberate the country from its American and Israeli occupiers. Rafiq al-Hariri, Lebanon's respected prime minister, had been blown up by a car bomb in February 2005, causing much of the world to blame Asad and heap scorn on Syria. The people of Syria were grateful for Hezbollah's show of loyalty in their darkest hour. Syria and Hezbollah's ability to stick together in the face of repeated attempts to turn them against each other has helped both weather severe international pressure and outright war.

The real payoff for Syria's relationship with Hezbollah came in 2006, when the Shiite militia withstood Israel's month-long onslaught. Its mere survival dealt Israel a bloody nose and boosted Syria's strategic position significantly. Realizing that it could not defeat Hezbollah on the battlefield, Israel sought to do so diplomatically through negotiations. Indirect Israeli-Syrian talks were carried out in Turkey. These negotiations signaled the end of President Bush's international boycott of Syria. Seeing that Israel no longer shunned Damascus, world leaders began to beat a path to Asad's door. Israel's failure to destroy Hezbollah not only scuttled Washington's policy of isolating Syria; it also ended Washington's policy of stripping Lebanon from Syria's sphere of influence.

Today, Syria is again the undisputed foreign arbiter of Lebanese politics, as it has been for a quarter century. Despite President Bush's and Prime Minister Olmert's best effort, their attempt to wrest Lebanon from Syria was no more successful than Ronald Reagan's and Menachem Begin's attempt to take it from Bashar's father in the 1980s. Retaining Syria's strategic depth and influence in Lebanon must be counted as a major achievement. Bashar played Syria's foreign-policy cards about as well as anyone could have, given the difficult hand he was dealt. By outfoxing Israel and the United States in Lebanon, just as his father did, he has won the respect of regional leaders for his cool under fire and ability to play the long game. During Asad's second decade in power, few will underestimate his knowledge of the region or his strategic acumen.

Isn't Syria off the hook on the Hariri murder? Hasn't the Special Tribunal for Lebanon indicated that it will indict members of Hezbollah for involvement in the Hariri assassination but no Syrians? Doesn't this shift the blame for Hariri's murder onto Hezbollah?

It is too early to say anything definitive about the Special Tribunal for Lebanon (STL). As this article goes to press at the beginning of August, we only know that Nasrallah has announced that Saad Hariri informed him that several members of Hezbollah would be indicted. It does not seem that any Syrians are on the list. Does this mean that Syria is off the hook? It is too early to say. Some commentators continue to insist that Syria had to have a role because it is an ally of Hezbollah, because the bomb that killed Hariri was so big and the plot so refined, a non-state actor would have been incapable of pulling it off, and, because Syria had 16,000 soldiers on Lebanese soil in 2005, it must have been responsible for the attack. But these arguments are not persuasive. The United States has occupied both Iraq and Afghanistan with far more troops than Syria had in Lebanon for many years without being able to control either country, let alone determine which non-state actor was carrying out very sophisticated bombings. The one lesson that the STL does seem to afford is that much of the world rushed to judgment with precious little information. What is more, the first report delivered by the first investigator of the special tribunal, Detlev Mehlis, named Syria as the prime suspect based on evidence that later prosecutors had to throw out. All the witnesses that Mehlis relied on for his Syria section later recanted, claiming that they had been bribed and pressured into giving false testimony. By the time the second investigator could jettison this misleading information and focus on the evidence that led to Hezbollah operatives, the damage was done. Syria has been subjected to a withering campaign of demonization over the last five years.

What has been President Asad's biggest failing?

Few would contest that his biggest failing has been on human rights and due process of the law. Syria restricts political freedoms more than any other Arab state. Freedom of speech and assembly are severely constrained. Syrians are frightened of their government. I have argued elsewhere that Syria probably holds fewer political prisoners per capita than many other Middle Eastern governments that afford their subjects greater freedom — Egypt, Iraq, Algeria, Israel, Turkey and Tunisia, to name a few — but this is no consolation for Syria's political restrictiveness, which casts a pall over daily life. NGO activity and civil society in Syria are practically non-existent. Human Rights Watch recently issued an assessment of Asad's first 10 years that declared they had been "wasted." There is no excuse for torture and prolonged arrest without charges.

Some analysts argue that Syria's economic-reform process is too little, too late, and that the regime is too brittle to face the changes that must take place. Where is the reform process headed?

Syria faces a major challenge in attempting to secure its economic future. This is President Asad's and the entire country's big challenge in the coming decade. Over the last 20 years the Syrian economy has grown too slowly and the population too quickly. Eighty percent of Syrians are under the age of 30, because they have one of world's highest population growth rates at 2.5. There are some 21 million Syrians today; the prime minister has warned that there will likely be 40 million by 2040. Every year, Syria grows by half a million people. Average per-capita income, according to the World Bank, is only $2,160. The percentage of Syrians living in "extreme poverty" rose from 11.4 percent in 2004 to 12.3 percent in 2007. Those living in what is called "poverty," or about $2.00 or less a day, rose from 30.1 percent to 33 percent over the same period.

Syria's water supply is overdrawn, and a three-year drought has strained the agricultural sector in the east. Maplecroft, a corporate-risk intelligence firm, recently rated Syria as having the tenth-least-secure supplies of water out of 165 countries it rated. Major industries in the north, such as textiles, have been hit hard by the global downturn and competition from Turkey and China, now that tariffs are being lifted. Syria was ranked ninety-fourth out of 133 in the World Economic Forum's 2009-10 Global Competitiveness Report, tying with Mauritania for last place among Arab states. Problems hampering growth were a slow decline in oil production, a delayed reform of state enterprises and high levels of corruption.4

The good news is that President Asad has put together a sound reform program, and Syria is moving in the right direction to dismantle the old socialist and centrally planned economy constructed by the Baathist regime. Asad is not rigid or ideological on economic matters. His wife is a former investment banker and is helping to push in the right direction. Abdullah Dardari, the deputy prime minister for economic affairs, leads a team of able politicians and economists who are spearheading the reform agenda. World Bank and IMF officials have expressed overall admiration for Syria's efforts at reform. Some are frustrated with its pace, but they all believe Syria is headed in the right direction and has the prerequisites to make a success of its economic opening.

Barton Biggs, the prominent hedge-fund manager, argued in a 2009 Newsweek article that Syria may be the next "frontier" market, where great fortunes can be made. Iraq has opened up as an important market for Syrian goods, taking some 30 percent of total exports in 2008. Trade between Turkey and Syria more than doubled, from $795 million in 2006 to $1.6 billion in 2009, and is expected to reach $5 billion in the next three years. In April 2009, Syria opened a stock market and is preparing the way for other capital markets, such as a government bond market.

In 2004, the first private bank opened its doors in Syria. Today, 11 private banks hold $7.8 billion in assets as of 2009. Although Syria's six public banks, with the Commercial Bank of Syria at the forefront, still hold almost four times more assets than private banks, the new sector is coming on very quickly.

The Syrian government has been working hard over the past decade to attract foreign investment. Over 1,000 new laws have been passed since 2005 revamping Syria's legal framework to provide assurances for capital. As a result, net flows of foreign direct investment (FDI) rose by 43 percent in 2008, to $2.1 billion, from $1.2 billion in 2007. Syria's neighbor Lebanon received $3.6 billion in 2008, which indicates that Syria's absolute amounts of FDI are small, but the high growth rate is promising. Syrian authorities claim that FDI in 2009 was on track to reach $6 billion, which would be a stunning achievement.

Statistics indicating that economic activity is picking up rapidly this year are numerous. According to the July issue of Syria Report, revenues generated by Syria's customs increased 30 percent during the first half of 2010 over the first half of 2009. Tourism is up by a whopping 63 percent compared to the same period last year, according to the Ministry of Tourism.

Almost every day, one reads about new investment projects being launched in Syria: shopping malls, hotels, electric plants and coastal resorts. The argument that Syria may be on the verge of a takeoff is not without merit. The real challenge will be managing the switch from a socialist to a free-market economy without allowing the income gap and poverty to get out of control, as it has in some developing countries.

Many of Syria's fundamentals are sound. Average annual inflation will only be 6.5 percent in 2010-11, up from just 2.6 percent in 2009 but well below the peak of 15.7 percent in 2008. The trade deficit, which was only $1.7 billion in 2010-11, hovers around 3 percent of GDP. Syria's natural-gas production increased by 6.2 percent. Oil production has been mixed. Recently, new exploration has brought on a number of small fields that have counterbalanced the decline at more mature and larger fields. Total production may increase in the short term to an average of 380,000 barrels/day in 2010-11. Economic growth rates are on their way up because of the reforms. Despite world depression, Syria's real GDP growth was 5.9 percent in 2009, according to Central Bank figures. The Economist Intelligence Unit argues that 5 percent is closer to the truth, but we will have to see.

Syria is poised at a crucial turning point. Some days, one feels nothing but doom and gloom because of the many challenges; on other days, the future seems bright. A walk through the old cities of Damascus and Aleppo is inspiring. They have been transformed into beautiful environments that attract Syrian and foreign tourists alike. Syria has many bright spots, in addition to political stability and a government that is moving in the right direction.

Looking ahead, where is Bashar trying to steer Syria?

Principally, there is the Five Seas Plan: Asad's vision to maximize Syria's geographical position as the link for oil, gas and transportation between east and west and south and north. He has called Syria the natural entrepôt for the Arabian, Mediterranean, Caspian, Black and Red Seas.

Interestingly, Turkey has played an important role in Asad's development of this vision. Just as Syria has begun to replicate Turkey's "zero problems" foreign policy, it has also borrowed heavily from Turkey's economic vision of itself as the link between Europe and Asia. Asad first began to develop his plan in 2004 during his early visits to Istanbul. He spoke with the Turks about developing the infrastructure to turn Syria into the transport hub for oil, gas and electrical power. Syria would link Turkey to Africa and the Arab world. Iraq was in a shambles and unsafe, leaving Syria the only route through the Middle East. In May 2009, when President Asad traveled to Vienna and Greece, he continued to push the five-seas plan to European investors.

In June 2010, Turkey, Lebanon, Syria and Jordan laid the groundwork for a "Free-Trade Zone" that does away with visa requirements and tariffs. Syria hopes that Iraq and, ultimately, Iran will be brought into this agreement; Damascus has already eliminated visa requirements for Iranians. Syria has recently opened a gas pipeline that connects Egypt to Turkey. It has plans to rebuild the oil pipeline connecting Kirkuk in Iraq to the Mediterranean coast, the most direct and least expensive way to get Iraq's northern oil to market. Asad has spoken of the need to generate investments worth $77 billion from the private sector over the next five years in order to build up Syria's infrastructure and turn his vision into reality. If Syria can attract these investments and preserve stability, it will be well on its way to breaking out of its economic stagnation.

1 See Uri Segev's interview with Uri Misgav, Yediot Friday Political Supplement, June 11, 2010 (Hebrew original); the Englsh translation, thanks to Didi Ramez, can be found on "Syria Comment," June 17, 2010.

2 Dennis Ross, The Missing Peace: The Inside Story of the Fight for Middle East Peace, (Farrar, Straus and Giroux, 2004), p. 544